Property prices not all about recession
by Rachel Crook
It might seem like an obvious statement to suggest that the recession has had a negative effect on the property market. After all, rising unemployment and falling confidence are hardly the kind of factors conducive to a boom in the way the economic success of the years before 2008 were.
Indeed, it could be noted that in the current case, both the decline in the fortunes of the property market and the wider economic crisis have a common origin in the shape of the credit crunch.
However, the connection may not be quite as close or symbiotic as could be imagined. One reason to note this is that property prices began declining in the first half of 2008, before the wider economy started to contract.
Another is that signs have emerged of the possible green shoots of recovery for property in the first three months of 2009, with transactions, buyer interest and the number of mortgages agreed all showing increases, albeit from low levels. This is in contrast with a fall in gross domestic product officially estimated to be 1.9 per cent in the same period, worse than in the last quarter of 2008.
A new study has now suggested that the local situation in each area may also lack a direct correlation, with the level of house price decline not matching the extent of wider economic troubles.
The study, carried out by price comparison website uSwitch, found that the worst hit location in the country was Swindon, where property prices have undoubtedly fared badly with a 16 per cent drop since the recession began. However, what actually gave the Wiltshire town this unwanted status was its 197 per cent rise in jobseeker's allowance claims since the contraction started, worse than anywhere else in the country.
Yet Swindon's house price fall was not the worst. That came in Luton, which was down by 19 per cent, followed by Rochdale at 18.5 per cent and Bristol at 18.4 per cent.
At the other end of the scale, the London borough of Brent was listed as the place to suffer least in the recession, with typical incomes up 12 per cent and a below average unemployment claimant rise. Yet it was Aberdeen, not Brent, that came out top as the one place to see prices rise, with the Granite City up 5.6 per cent.
So for those keen to buy houses, the answer is not to simply look at where the recession has hit hardest when searching for bargains or struck least when searching for capital gains.
In the future, the best prospects may be decided by other factors. Speaking this week, Kate Barker, a member of the Bank of England's Monetary Policy Committee, said that a lack of housebuilding could spark a new house price boom.
She stated: "The existing target of 240,000 new homes per year by 2016 is difficult, if not impossible, to meet. When the housing industry was booming, we still only achieved 200,000 new homes in one year, which raises the prospect of prices rising sharply again in the future." She called for action to accelerate planning processes in order to tackle this issue.
So just as property investors may wish to look closely at the real local picture for house prices now, it may be that the future price trends in each area will depend on how many new homes the local authorities are able to get off the drawing board and onto the construction site.
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Published on: May 1, 2009
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